Income Tax Addition Can't Be Made On Cash Deposits During Demonetization Period: Delhi ITAT

The Delhi Bench of Income Tax Appellate Tribunal (ITAT) has held that the department is precluded from making any addition under Section 68 of the Income Act in respect of the cash deposits made into bank accounts during the demonetization period.

The bench of Challa Nagendra Prasad (Judicial Member) and Avdhesh Kumar Mishra (Accountant Member) has observed that there cannot be any addition under Section 69A of the Income Tax Act in respect of cash deposits made by the assessee into its bank account as unexplained income in the case of the assessee.

The bench observed that the AO except stating that the assessee has not furnished bills and vouchers for purchases he has not found fault with the books of account maintained by the assessee, the cash book, purchases, sales register, stocks, etc. The AO did not reject the books of accounts of the assessee.

The appellant/assessee firm, which is engaged in the business of trading in fireworks, filed its return declaring income. The case was selected for scrutiny to examine the cash deposits made into bank accounts during the demonetization period. In the course of the assessment proceedings, the assessee was asked to furnish the reconciliation of bank accounts and the cash deposits made, as well as explain the source.

In response to the notices, the assessee, in the course of the assessment proceedings, submitted that it is engaged in the business of trading all types of fancy fireworks, crackers, sparkles, etc., which are mostly sold during the time of festivals, i.e., Dussehra, Diwali, etc.

The assessee contended that in the financial year 2016–17, Diwali was celebrated, and the assessee collected payments from customers and also made cash sales at the counter and subsequently arranged to deposit into the bank.

The AO treated the cash deposits as unexplained income under Section 69A, observing that the assessee did not disclose the bank account in the Bank of India where cash deposits were made to the extent of Rs. 69,25,000 in the return of income filed. The AO also observed that the assessee neither furnished the stock summary nor furnished the bill and voucher in support of purchases.

The AO observed that the assessee did not deposit the cash in hand in the bank account immediately but deposited the cash collected much later than the date of demonetization. Therefore, the explanation of the assessee was not accepted. The assessee preferred appeal before the CIT(A), and the CIT(A) sustained the addition made by the AO under Section 69A of the Income Tax Act.

The assessee contended addition under Section 69A of the Income Tax Act cannot be made in respect of cash deposits recorded in the books of account. Section 69A is applicable only where money, bullion, jewellery, or a valuable article is not recorded in the books of account. The cash deposits made into the bank account were recorded in the books of account of the assessee. The books were audited, and the assessee has furnished a tax audit report. The addition cannot be made in respect of cash deposits that were recorded in the books of account under Section 69A of the Income Tax Act.

The assessee argued that it had received cash from Zegar Gas out of sales invoices of Rs.32,62,011/- raised from 13.06.2016 to 26.10.2016.

The tribunal, while allowing the appeal, held that when the audited books of account were not rejected and the sales of the assessee had not been disturbed, the department was precluded from making any additions under Section 68 in respect of the cash deposits made into bank accounts during the demonetization period.

Counsel For Appellant: C.S. Anand

Counsel For Respondent: Sanjay Tripathi

Case Title: Durga Fire Work Versus ITO

Case No.: I.T.A No.383/Del/2024

Click Here To Read The Order